Not Quite........

Today was the big day. Dow 14,000 was crossed (we won't mention that the broader S&P 500 index actually fell on the day). I'm not sure what repelled the market away from this level. Your guess is as good as mine.


Of course, television pundits were completely obsessed with the Big Round Number. If and when we actually close above 14,000, it will be about 3 seconds before someone writes an article entitled, "Next Stop: 15K!" Yawn.


I took a small bearish position on CME today. It seems we have a failed breakout here. Plus, all the elation over BOT is past us now.


Intel is one of the largest and earliest earnings reports for Q2. As of this writing, this stock is down nearly 5%, wiping out about $7 billion in shareholder value. As an aside, YHOO also just reported, and they are down about 2% right now.


I've got puts on NutriSystem, whose stock is finally starting to slip some.


I also augmented by CVX position by buying some XOM puts.


That's it for today. I think some of the snarky comments have me less inspired to write a long, thoughtful post. I've got other things to do.

Prophet North

Up, then down. Up, then down. In spite of my optimism last Friday, I'm feeling that dealing with the markets these days is a Sisyphean task. We've been range-bound for many weeks, and it looks like we're at the top of that range again. Here's the Russell 2000 on an intraday basis.


Of course the big question......and it only gets bigger every time we find ourselves at the extreme of a range.....is "break or bounce?" As with anything else in the world of charts, the longer a time period that price action is range-bound, the more dramatic the "escape" from that range.

So whereas I was optimistic before when we were near the bottom of the range (emotion check: greed), now I'm concerned we could bounce above this range and get back into full-blown bull mode (emotion check: fear). It's pretty clear that this week will give us the bounce-or-break answer. Here's the S&P 500 on a daily basis, and you can see the consolidation period over the past five weeks or so:


On an intraday basis, this range is very clear to see. Although prices typically take longer to climb than the fall, it seems that within this range, the motion is happening with similar speed. It only took a week from me to change my attitude from "oh, yeah!" to "awww, crap."


I haven't been following gold too closely, but wow, the $XAU chart is really in motion now. It is still in the range shown here, but Friday was a big day for the gold bulls.


Akamai is in an interesting breakdown pattern, albeit at an angle. Worth watching.


Chicago Mercantile (CME) is a good example of why it's important to wait for patterns to complete (I am guilty of ignoring this rule on occasion). As you can see, it was in a tremendously toppy pattern, but then it skittered away from the breakdown point and has done sensationally well since to the upside.


If you do believe the market is ready to head south again, a short position on the DIA or puts on it are a pretty good bet, since both the stock and the options are so liquid.


Micron (MU) is a stock I've mentioned as a bullish idea for the past couple of weeks. It looks better than ever. Just look at Friday's push upward.


I'm sorry this post was late; as I mentioned, I was heading to Lake Tahoe and that took a big bite out of my day. Enjoy your weekend, and I'll see you Monday evening.

The Indexes Change Places

I've noticed - anecdotally, of course - an interesting trend recently. It occurred to me when I went to the Maker Faire in nearby San Mateo, which is basically a get-together of do-it-yourself types. And I don't mean Bob Villa. I'm talking about people who make their own stuff, from robots to housing to computers to clothes.

As I milled around - and this was a very crowded event - I noticed how many nerds, geeks, and Melvins (my term) there were. And I was transported back to 1980, when I attended the West Coast Computer Faire (there's that olde English spelling again....) as a youngster.

It seems to me there is a backlash going on amongst nerd-dom with respect to computers. In 1980, you had to be pretty hip and with-it (ahem....) to really be into personal computers. Nowaways, anyone with a room temperature IQ has one. Sort of the same with cell phones.........if you had a mobile phone in, say, 1986, you were hot stuff. These days, even homeless people have them.

Another thing I've seen supporting this trend is the recently bestselling book The Dangerous Book for Boys, which features not the latest information on PlayStation 3 but instead discusses kites, marbles, and handy Latin phrases. If this cultural counter-trend has anything to it, I find it all quite charming.

As long as I'm ignoring charts, I'll also say that I just finished The Wisdom of Crowds by James Surowiecki. On pages 224-228, he writes:

In 1995, the finance ministry of Malaysia suggested that [short sellers] needed to be punished [with] mandatory caning....Napoleon deemed the short seller "[an] enemy of the state." Short selling was illegal in New York State in the early 1800s while England banned it outright in 1733 and did not make it legal again until the middle of the nineteenth century...shorting was denounced on the [U.S.] Senate floor as one of "the great commercial evils of the day"'...one reason why there isn't more short selling is that most people are not psychologically built to endure constant scorn.

We poor bears! Hated throughout history.

I noticed MarketWatch was touting the idea that the S&P was at a new high. Not quite. With their tortured logic, the S&P's high today was higher than the highest closing price. Well, yeah, that's true. But that's comparing apples and oranges. Who cares?

According to my data, the highest price reached by the S&P on an intraday basis was 1552.87 on 3/24/2000, and the highest closing price was 1527.57 on the same day Today's high was 1529.87 and the close was 1525.10. It's a pretty sure bet there will be a new high on the S&P 500 tomorrow, but let's at least wait for it to happen before touting the news, shall we? Anyhoo, here's the $INDU:


The indexes, until recently, have had all their firepower in the Dow 30. That was not the case today. The Dow actually inched down in price, whereas the Russell 2000 blasted higher by 1.21%. It seems the small caps are finally playing catch-up.


The Chicago Mercantile Exchange (CME) inched down today and continues to shape a nice topping pattern.


I like to look for stocks that are far away from their supporting trendline and seem to be flipping around to a downward direction. CSX fits this.


ESS looks like it is inching up toward its neckline, which could make for a relatively low-risk head and shoulders pattern to play on the short side.


JC Penney also is forming its head and shoulders cleanly. Of course, one must be cautious to trade incomplete patterns, as a single price bar would render it moot.


KRC is another homebuilder with a similar pattern forming like ESS.


On a final note - one frequent commenter, Gary, has mentioned the Commitment of Traders many times in the comments section. I was intrigued and did some basic research, but I find this data difficult to interpret. I guess I'm a sucker for easy-to-read graphs. I would appreciate his illuminating this issue in the comments section to give us a bit of a tutorial on the subject, since it sounds interesting; thanks in advance.

Sheer Energy

Another record. This is getting really monotonous.

One index that hasn't actually reached a new record, but is within a hair's breadth of it, is the S&P 500. It peaked back in January of 2000, and if Monday is up at all, it will almost certainly reach a new record closing high (and I don't need to tell you the financial media will make a huge stink about it).


The $VIX remains very, very low, indicating widespread complacency. You can see how the VIX deteriorated from 2003 through 2005 and has remained low ever since. There was a time when the normal VIX range was between 20 and 50 or so. These days, it's lucky to even stay in the teens.


Real estate has been getting hit, in spite of the market's overall strength. I've got a number of real estate shorts, one of them being AIV.


Akamai (AKAM), which I am short, went up some today, but I am still comfortable that this pattern is safely beneath its neckline.


One days like this, if you see major stocks with weakness, that's usually a very bearish sign. The CME is a good example.


InfoSys (INFY) is an even better example, since its pattern is more clearcut.


The thirty stocks which comprise the Dow 30 Industrials have obviously been very strong, by and large. MMM is no exception, although it seems awfully lofty right now, and it is sporting an impressive shooting star with today's action.


Energy has been incredibly strong. I've mentioned some oil service stocks here recently as good bullish plays. But even looking at the general OIH stock, which represents an amalgam of oil service securities, you can witness the terrific strength lately.


PSB is an other short of mine that has been enjoying the real estate tumble.


Finally, VNO is another participant in the real estate slump, and it features a really nicely-defined head and shoulders pattern.

The Pain Grows Stronger/Watch It Grin

Years ago I remember seeing a Dilbert cartoon where Dogbert had yet another get-rich-quick scheme. This one was a generic newspaper which featured headlines about "Unrest in Middle East" and "Government Proposes More Taxes". It was basically a newspaper you could read any day for the rest of your life, and it would always be true.

Much the same can be said of the market - at least in terms of the Dow 30. I'm starting to lose track. What would today make it......the last 27 out of 30 sessions up? Something like that. It's starting not to matter. As you can see from the graph below, it essentially never goes down.


I am staying far away from SPX puts (or DIA puts, for that matter). The only index put I've been accumulating is on the Russell 2000. Earlier in this cycle, the Russell was strong than the Dow, but recently, it's been falling behind. It also has the added advantage of falling faster on the rare occasions when the market is weak (notice the recent dip, shown in blue).


A closer look at recent activity illustrates the relative weakness better. Today the Dow was up yet another 50, whereas the Russell - a broader index - actually fell.


The NASDAQ Composite is also relatively low on steam compared with the mega-caps.


And the $XMI is continuing the exhibit the rather fascinating "hug just beneath the broken trendline" phenomenon.


I have no position in the CME, but it's interesting how this is shaping up recently. It's not really a head and shoulders pattern, but it definitely looks toppy.


My puts on INFY did pretty well today. Infosys (INFY) fell on a good pick-up in volume.


Symbol MEE is a pretty massive head and shoulders pattern, although frankly patterns this big don't have as much weight with me, since it has already kind of done the retracement-and-fall-again dance. But your eyes have every right to make an independent judgment.


Symbol MS is doing the same shtick as $XMI.


Airline RYAAY finally took a tumble, losing about 20% of its value in the past week or so. It was really overheated earlier, and I don't see any clear pattern at this point.


Long suggestion SCHN continues to do well, although I'm sure the massive buyout news regarding AL/AA had everything to do with today's rise.

Sissyneck

Today's entry will be relatively short.

Not a heck of a lot going on in the market today, although as my "FickleMan!" post suggested, I decided there was a good entry point today when the Dow was up about 50 points. At this point, we are in the upper half of the trading range that has been recently established. The breakout points of this range for the S&P couldn't be more plain:


A similar situation with the $MID, but from a different viewpoint. Look at the Fibonacci levels. The prices are bound between two levels right now, and we're once again in the upper half. Tomorrow morning's economic numbers will almost surely give us a catalyst for breaking out of this range.


The most exciting suggestion from this blog in today's action was the Chicago Mercantile Exchange Group (symbol CME), which I was touting when it was around $570. It got absolutely clobbered today, and I not only held on to all the puts, I even added a little to the position. I think great things could come from this trade.


Although my book has been out just a couple of weeks, there are a bunch of nice reviews already you might want to check out in case you were considering getting it. A lot of kind folks have written me about the book, which I appreciate it. It's pretty obvious I have a great interest in yakking about charts!

Odelay!

The Bear: "Are you an assassin?"

The Bull: "I'm a soldier."

The Bear: "You're neither. You're an errand boy, sent by grocery clerks, to collect a bill."

Needless to say days like this make me happy. Particularly since today's 243 point drop on the Dow was within plain sight......two weeks, to the day........of the lovely 400+ point drop on the Dow on February 27th. A new force may be emerging.


Not that long ago - say, last year - I would have been jumping around talking about how it's the end of the world and the bears are going to own everything, and so forth. No more. I've learned a skosh of humility (and paranoia) since then. So I take it a day at a time. All the same, I grin when I imagine what that Australian touch-hole who called me must be going through. Although I'm assuming he has money to lose, which is probably a false hope.

On the occasions when I drive my family up to the mountains of California, we pass many towns that seem completely populated by those completely grotesque and utterly uniform beige-with-red-tile monstrosities that are advertised as "Homes" in the weekend papers. These vile creations seem to be the work of firms like Toll, Pulte, and Beazer, all of whom seem to be going to hell in a handbasket. Maybe there's a little justice in this sad, sick world after all.


The unwinding of the "buy and flip" insanity is crushing the sub-prime lenders which, in turn, is causing we few.........we happy few........to have good days like today. Here's Fremont....


And the poster child of this debacle, New Century. Thanks, fellers! We appreciate your bringing along the kind of disaster we need to start something really horrific!


The story for the indexes is the same across the board, so pay attention: if they can break the lows set next week, it's party time. If they stabilize and recover, we're probably going to be range-bound by something approximating today's range. Here's the NASDAQ composite with a potential target circled.


The minute by minute charts illustrate how the bullish breakout that was attempting to form completely failed. Disappointed bulls! Our specialty! Die, you weasels....


My favorite index, the Russell 2000, needs to break below $760 for us to continue to celebrate.


Here's a minute chart of the $RUT with more detail. An analysis of the psyches which pushed the market up, and then down, are provided for your convenience.


This is getting old, but here we go - the S&P 500.....


And the minute graph of the same.......


The $XMI is staring in the face of a grand breakout failure.


AutoZone, which has been up about three million percent in the past few months, is finally breaking. I've got puts. Lots of 'em.


Recent favorite CME is throwing lots of green into my account.


Oh, and then there's Google. The company that could do no wrong. These turds paid $1.6 billion for a web site where people could post mostly stolen content. And they haven't been able to figure out how to make money at it. And now they're getting sued for $1 billion. And I've got a hunch there are other big media companies that will follow. Nice goin', braniacs. Talk about buying at the top. Had they waited a few months, they could have picked up the same company for 1/8th of the price, I bet.


Ah, and Goldman. Yep, you've seen this mentioned here many times. My puts on this did great - - I bought a bunch at the top today. In spite of blowout earnings, they fell down hard on huge volume with a bearish engulfing pattern. Yes!


Wow, it's almost too much pleasure to take. Maybe the bulls will wipe some of the grin off our faces tomorrow, eh? We'll see. Deep down, I'm always hoping we're at the start of something very big that will absolutely destroy those creeps. Hope springs eternal! Go get 'em, a'ight?